Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be
correct at the time of issue, may not represent the current
Position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
April 19, 1994
T2 & T3 PROGRAMS DIVISION Rulings Directorate
T2 Programs Section P. Diguer
(613) 957-8953
T.D. Peters
Senior Programs Officer
7-933622
Subsection 87(2.11) of the Income Tax Act (Canada) (the "Act")
This is in reply to your memorandum of December 1, 1993. You requested our opinion on the application of subsection 87(2.11) of the Act. You ask the following question:
"Can subsection 87(2.11) be read without reference to subsection 87(2.1) or would the statement in 87(2.1) that "this subsection shall in no respect affect the determination of (e) the taxable income of, or the tax payable under this Act by, any
predecessor corporation", prevent the application of these pre-amalgamation losses?
Your opinion is that only losses incurred after the amalgamation can be carried back.
We agree with you that only post-amalgamation losses can be carried back pursuant to subsection 87(2.11) of the Act. For illustrative purposes, let us consider the following situation:
Parentco owns all of the shares of Subco. Subco has not been operating profitably and has non-capital losses.
Parentco and Subco amalgamate to become Amalco pursuant to section 87 of the Act.
Could the losses incurred by Subco in a year preceding the amalgamation be deducted pursuant to paragraph 111(1)(a) in
computing the taxable income of Parentco? In our view, they could not.
Amalco is deemed to be a new corporation pursuant to paragraph 87(2)(a). Consequently, absent subsections 87(2.1) and (2.11), the losses of the corporations are distinct from each other. By virtue of subsection 87(2.11) however, Amalco is deemed to be the same corporation as Parentco for the purposes of applying section 111 in respect of Parentco (carryback of losses). Since Amalco and Parentco are the same corporation, the losses of Amalco can be used in computing the taxable income of Parentco. Do the losses of Amalco include the losses of Subco for this purpose, considering the application of subsection 87(2.1)? In our view they do not. Subsection 87(2.1) of the Act deems Amalco to be the same corporation and a continuation of Subco for the purpose of determining the new corporation's losses, but specifically not to determine the taxable income of any predecessor corporation.
Consequently, the losses of Amalco include the losses of Subco pursuant to subsection 87(2.1) for the purposes of computing Amalco's taxable income, but do not include the losses of Subco for the purpose of any carry back of losses pursuant to paragraph (e). Therefore, Subco's losses cannot be deducted by Parentco by using subsection 87(2.11) of the Act.
We trust this is the information you require. We apologize for the delay in responding. If you have any question, please feel
free to call us.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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